Market changes are in the air

A decade after going into free fall, the preowned market finally seems to be holding altitude and perhaps even finding lift, with transaction reports and spreadsheets heralding a shift in advantage from buyers to sellers. While the aircraft and deal numbers vary among market tracking services, a couple of facts seem indisputable: inventory of business aircraft on the preowned market has declined quarter by quarter for the past two years, falling to levels not seen since the last decade; and finding high-quality inventory has suddenly grown challenging, to the point that bidding wars for aircraft have been reported.

After dropping 14.6 percent from September 2017 through August 2018 (from 2,244 to 1,958), the percentage of business jets on the market now stands at 9.2 percent, according to JetNet, below the 10 percent availability level long considered the benchmark of a balanced market. (The total fleet grew 1.6 percent during the period.) Inventory in the recently robust turboprop market fell 10.9 percent over the year (from 1,144 to 1,032), leaving only 6.7 percent of the fleet for sale.

Business aircraft for sale: 2015-2018

Yet the year-over-year increases in jet and turboprop sales in the first half of 2018 were “modest,” says Amstat, though specific categories—particularly late-model, large-cabin jets—are selling strongly. A full 5 percent of the heavy-jet fleet turned over in the first six months of this year, the market tracker reports, the best performance for the category since 2007. Heavy-jet inventory now stands at just 6.8 percent of the fleet, according to Amstat, the lowest percentage since 1998.

Some popular preowned models

Meanwhile, average ask price is increasing and the ask vs. transaction value differential is narrowing, Asset Insight’s second-quarter report says, signaling a move toward a “neutral” to “sellers” market for young, lower-time aircraft. Ask prices for heavy jets were up 17.7 percent year-over-year and turboprops posted a 1.2 percent boost, though ask prices for medium and small jets dropped 15.9 and 3.6 percent, respectively. Yet the spread between ask and sale prices tightened in all four aircraft categories.

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Asset Insights’ data on rising ask prices parallels Amstat’s mid-year report, which found that the 17.7 percent increase in heavy jets’ price tags brought the value of a late-model aircraft to an average of $26.5 million. But before assuming this represents a true market turn, remember that this is a small market where one or two transactions can skew numbers dramatically. In the case of the rise in heavy-jet asking prices, Amstat notes that the recent addition of some high-priced heavy metal—including a G650 and G650ER, a Falcon 8X, and a Boeing Business Jet—is the reason for the dramatic uptick.

In fact, of the 57 current-generation business jet models that AircraftPost tracks, “only nine makes and models have shown slight year-over-year gains in selling prices,” says founder and president Dennis Rousseau. The average sale price of GIV-SPs has risen from $4 million a year ago to $4.25 million today. Meanwhile, despite the reported clamor for late-model jets, the largest value increase among the aircraft AircraftPost tracks was on the GIV, oldest of the large-cabin Gulfstreams it follows. The GIV rose from an average of $1.9 million to $2.4 million.

“The remaining 48 models are either flatlining or continue to decline,” says Rousseau.

He believes the days of steep drops in residual values may not be over. “Based on 2017/2018 preowned sales for the G650ER [an aircraft that has traditionally held its value well], year-over-year market depreciation stands at 14 percent.”